CGS-CIMB Research analyst Lim Siew Khee has reiterated “add” on Mainboard-listed <a href="https://www.theedgesingapore.com/tags/yangzijiang-shipbuilding-yzj" target="_blank">Yangzijiang Shipbuilding</a> with a higher target price of $1.91 from $1.63 previously.

Lim’s report, dated Aug 2, comes after the group <a href="https://www.theedgesingapore.com/news/contracts/yangzijiang-signs-new-orders-worth-us158-bil-marks-record-orderbook-us874-bil" target="_blank">signed new orders</a> for a total contract value worth US$1.08 billion ($1.46 billion).

The new orders bring year-to-date (y-t-d) orders for the group to US$6.67 billion and its orderbook to US$8.74 billion.

As the group will report its results for the 2QFY2021 on Aug 5 after market closes, Lim estimates gross margins for shipbuilding in the quarter to be lower at 12% to 13% compared to the 15.9% posed in the 1QFY2021. This, she explains, is given the 19% q-o-q rise in steel prices.

See also: <a href="https://www.theedgesingapore.com/capital/brokers-calls/uob-kay-hian-sees-sembcorp-yangzijiang-and-keppel-compelling-investment-cases" target="_blank">UOB Kay Hian sees Sembcorp, Yangzijiang and Keppel as 'compelling investment cases' in offshore & marine sector</a>

That said, the group’s net profit could be boosted by the sale of its own fleet of bulk carriers, which Lim estimates to be in the range of RMB680 million ($142.1 million) to RMB710 million, which is 10-12% lower q-o-q.

In addition to her higher target price estimate, Lim has upped her earnings per share (EPS) estimates for the FY2021 to FY2023 by 1% to 26%.

She has also lifted her order win forecast for the FY2021 by 60% to US$8 billion, offset by lower gross margins.

“We think the strong orders y-t-d should lead to positive share price movement,” writes Lim.

“It trades at a steep discount to the Korean shipbuilders - Korea Shipbuilding & Offshore’s 0.85 times 2021 P/BV and Hyundai Mipo Dockyard’s 1.5 times 2021 P/BV - although KSOE secured [around] US$12 billion of new contracts and HMD US$3.6 billion in 1HFY2021,” she adds. “Yet, we think profitability matters.”

For more stories about where the money flows, <a href="https://www.theedgesingapore.com/section/capital" target="_blank">click here</a> for our Capital section

To Lim, a strong order win momentum and good margin preservation are key catalysts to Yangzijiang’s share price, while a sudden plunge in freight rates is a key risk.

As at 1.45pm, shares in Yangzijiang are trading 2 cents higher or 1.4% up at $1.41, or 0.73 times P/B, according to CGS-CIMB’s estimates.

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